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Chipotle Wants to Give Away a Lot of Burritos This Summer

There are going to be a lot of people getting carded at Chipotle Mexican Grill(NYSE:CMG) this summer, and it has nothing to do with the beer or margaritas that folks seem to rarely order. The slump-stuck restaurant chain is rolling out Chiptopia on Friday, a temporary rewards club that will be handing out free entrees to frequent diners through the next three months.

At first it may seem like a complicated offering. Customers will be able to pick up a Chiptopia card on Friday, the first day of July. That's when the new loyalty program kicks in. You get a free entree after your first four visits in July. Another free meal awaits after your eighth and eleventh visit of the month. The totals then reset to zero in August -- and again in September.

The free entrees must be redeemed within 30 days of being earned, and you can only notch one of the required visits -- spending at least $6 -- per day. That certainly starts to make things complicated. If you grab the 11 visits in any given month along with the three freebies we're talking about eating at Chipotle as many as 14 times in a single month. That's a diehard Chipotle fan.

It gets even more complicated. If you treat your burrito consumption like you do video games you can score some serious points. If you manage to score at least four visits in each of the three months you will get yet another free entree. A $20 credit for Chipotle-branded merchandise awaits those who scored eight visits in July, August, and September. If you managed to hit peak Chipotle -- 11 visits in each of the three months -- you win free catering for 20 people (a $240 value).

Welcome to Chiptopia -- Population: You

The whole program may seem like more trouble than it's worth. Won't hardcore fans of Chipotle get tired of all of those bowls, burritos, tacos, and salads? The goal is obviously to get loyal customers to come back more often, but won't the short wick of this three-month campaign end in repulsion? The last thing that I would want after wolfing down 42 burritos through three months is a catered box of 20 more.

You also have to wonder if Chipotle is doing its "food with integrity" image any favors by not only encouraging the gluttony but also filling the world with millions of Chiptopia cards that will become worthless at the end of September. Et tu Chipotle?

However, investors have to agree that Chipotle must do something to jump-start growth. It's coming off of back-to-back quarters of double-digit declines in comps. Customers haven't forgiven and much less forgotten last year's incidents where customers became ill after consuming Chipotle meals. This culminated in Chipotle posting its first deficit as a public company during this year's first quarter with comps down a jarring 29.7%.

Even the more upbeat analysts don't see Chipotle returning to its peak 2015 summertime form until 2018, and that's why the 2,066-unit chain is doing the right thing by getting more aggressive with its promotional campaigns.

This one has a good shot to work. It has a clever initial hook. Sign up for the card starting on Friday and diners will get a free order of chips and guacamole. This is going to find a lot of Chiptopia cards going into wallets, and all it can do at that point is encourage incremental visits. It may seem odd to roll out a loyalty program with a short-term mindset, but you can't blame Chipotle. The stock has shed nearly half of its value since topping out 10 months ago, and investors won't come back until the burrito eaters do first.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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